How To Use A Cash Out Refi When Investing In Real Estate

 

Adam Wolbarst is today’s guest on the Not Your Average Investor Show. He is a longtime JWB client who recently did a cash out refi on six of his rental properties. His unique approach of qualifying opportunities as a real estate investor and his experience during his refinancing process helps us learn valuable lessons on using cash out refi options when investing in real estate. 

Adam shares helpful information about refinancing and what he wishes he had done earlier. In this discussion, we learn the following:

  • When does it make sense vs. not make sense to refinance?
  • How does he qualify the opportunities when investing in real estate?
  • How does he leverage his real estate network to grow his portfolio?

What Is A Cash Out Refinance Investment Property?

Cash out refinancing can supercharge your rental property portfolio. If you want to use a cash-out refinance to buy a rental property, you need to follow these steps:

  1. Assess the properties you currently hold.
  2. Define how much equity is built into their current value.
  3. Walk through the numbers to see if a refinance and taking the cash out to place as a down payment on another property makes sense for your situation.

When real estate investors have home equity lines of credit, a good credit score, and can refinance at a low interest rate, they can consolidate debt and invest in rental properties to boost their net worth. For those real estate investors who hold onto their real estate for the long term, cash out refinancing is a great way to capitalize on the equity in your home.

How Did Adam Wolbarst Begin Investing In Real Estate?

In 2008, Adam graduated from the University of Florida, and right before Spring Break, he got a job with Hess Corporation. They were doing gas stations and oil. He entered into leadership programs. 

Within that business and through his UF friends, Adam Wolbarst met Gregg Cohen about 2010. Gregg convinced Adam that real estate investing was an excellent asset class to consider. 

When JWB started, there was a great sense of community and giving back to Jacksonville. Adam saw that they built a good culture and invested a lot into their team. Adam saw this when they had a small group of employees and even now with a larger team. It’s why JWB is such a great partner for Adam and why JWB is wildly successful.

Adam knows where Gregg and JWB began, and they have now gone to an even better level. They were in a converted salon in those early days, and the family lunches together included the “sloppy rancher” sandwich. 

Does Adam Have Any Regrets About Investing In Real Estate?

Not at all. However, Adam wishes he did the cash out refinances earlier, like five years ago, because he could have made even more money. He’s doing well, but he learned that he could have done it earlier. He had an opportunity to use the cash-out refinances to get to his retirement plan earlier.

Debt on real estate is an innovative, strategic way to increase his assets. Adam is flipping the script on what most real estate investors do. When you get into real estate, you need to get used to the idea of making mistakes and having regrets. 

He wishes he could have borrowed more money to buy more properties, knowing where the market is today because he could have made even more money. But that’s 20/20 hindsight.

When Does It Make Sense vs. Not Make Sense To Refinance?

Adam had a detailed, elaborate process on how he approaches cash-out refinancing. Adam has lots of spreadsheets showing the prices on Zillow, how much he owes on each property, and various market factors. He focuses on networking and asking real estate agents about the pricing estimates on Zillow. Wolbarst also went to Adam Eiseman of JWB to ask what Eiseman thought these properties were worth. 

From there, he went shopping for mortgage brokers and interest rates. Adam Wolbarst then asked a friend to help him with mortgages, and he refinanced everything within a month to six weeks. He got an excellent return on his investment, and that’s a high level on how he did it.

What About Looking At One Of The Properties In His Portfolio? 

When Adam bought the first property on Peter Rabbit Drive in the Westside of JAX, he bought it originally for $86,000 in 2010. As of July 2021, it’s worth about $177K. 

At the time of Adam’s cash out refi, the real estate agent told him it was worth $170K. That was his target number for refinancing. The original interest rate was 4.8%, so Adam shopped the new mortgage and got it down an entire point. His old payment to his new payment was a mere $13 increase in his mortgage payment!  

At the time of refinancing, Adam owed $55K on the property. The proceeds he got out of that property were $65K!!! That means he got about 75% of the new value out of the property to reinvest in more properties!  

First, he paid off the $55K he owed on the first mortgage. Adam was then able to take advantage of $65K to make an additional investment. The closing costs relative to the proceeds were 10%, and that’s how he decided upon which properties he should refinance.

Why Should These Cash Out Refi Metrics Matter To You When Investing In Real Estate?

It’s the cost of gaining access to your capital. The closing costs relative to the proceeds were 10%. That means you’ll pay 10 cents on the dollar to get to your equity. 

Only one of the seven properties didn’t get a refinance because the numbers didn’t make sense. So, he only refinanced 6 of the seven properties. 

He explained, “Every single refinance had to make sense on its own merit.” It’s a great way to maximize your passive income’s ROI. Adam wound up getting interest rates as low as 3% flat rate.

Has Adam Thought About Selling His Properties vs. Refinancing?

Back in the day, the property should have had cash flow at 1% of its value. But times have changed, and rents have gone up. Property values have gone up as well. Adam looked at how the properties were appraised and compared them to the monthly rents. 

Who is in the market that will want to purchase these rental properties? These are C-level or B-level properties that are not as sexy as the A-level properties. When selling his rental property, he’ll need to sell it to another investor, who may not want to buy it at top market value. 

“If I sell it, I might take a haircut on the property. So, I could sell it and lose money, or refinance it and use that cash to invest in additional properties.” Those two factors made him refinance because he still holds the asset with positive cash flow and can acquire more!

Selling a JWB investment property isn’t going to be purchased at top market value. Yes, you may “take a haircut” on it. If you hold onto the property for at least ten years, you won’t be hamstrung around selling the property on the retail market. 

If you’re going to make a profit on the sale, you’ll need to hold onto the property for a long time. You want to live out an entire market cycle because that’s where it pays off handsomely. It will likely happen again during every market cycle!  

So, in another ten years, investors can make even more money on the properties they acquire now. When you refinance or sell, you need to know what you’re going to do with those proceeds.

Is Adam Using Self-Directed IRAs To Invest In Real Estate? 

Adam has not done that personally. But Gregg mentioned that what Adam is talking about is NOT done through his retirement accounts. The numbers and strategy are very different from what he’s talking about with cash-out refinancing.

How Does He Qualify The Buying Opportunities When Investing In Real Estate?

Find a realtor in the state you’re investing in, not in the state where you reside. The taxation and legal concerns are different for each state. Additionally, find a great property manager. These factors will make a big difference in your real estate investing ROI.

Fortunately, the JWB business model of vertical integration gives investors the advantage of having a one-stop shop. They buy the land, build on that land, sell the properties, and manage the properties.

Look at your portfolio and try to do the math yourself first. Should you refinance? Look at your original mortgage rates to decide. 

How Does He Leverage His Real Estate Network To Grow His Portfolio?

Speaking to a mortgage broker is free. Ask them upfront about their closing costs. Shop around. Don’t always go with the first person because you may find a better offer. 

Don’t get put into a pressure situation. Mortgage brokers can be honest but can push you into a refinance with their favorite line: “We need to get you in this property today and lock in at this rate because the rates are going up!”

Different closing agents are not all created equal. The same goes for property management companies. 

Shop around. Look at your numbers. Put the work in to find the best deals. What Adam has been experiencing is not a surprise. He invests in cash flow properties in a growing market. 

Your portfolio manager at JWB is available to help you with refinances for any clients on the call right now. They’re able to see where the interest rates and property values are today. The investors may want to go from owning five properties to 10 properties, and we may be able to engineer the finances to where you use cash-out refinancing to double your earnings. 

Your JWB portfolio manager is just a phone call away for many of our investors watching this NYAI Show! Call your JWB portfolio manager right away if you want to explore cash-out refinancing!

What Did Adam Do With His Cash-out Refi Proceeds After Refinancing His Six JWB Rentals?

Adam lives in NYC, and he grew up in Florida, with lots of lands and fresh air. He loves the beauty of upstate New York, and he wanted to buy a weekend home there. Instead, Adam stumbled upon a commercial property, and he ended up buying it. 

Adam and his fiance are now the owners of the Herwood Inn, an eco-friendly boutique hotel, and it fits in well with the community. It’s a terrific, unique investment. His fiance manages the bookings for the hotel, and Adam is managing the financing. 

The purchase of the Inn was entirely out of the blue. But when he looked at what he could do with the weekend property, he intended it to be a break-even Airbnb property that could build equity. But then he looked harder at the Airbnb model and compared it to the Inn with four suites. 

Now, he has four different units that he can rent out under one roof, and he is only managing one HVAC system, one landscaper, one management of rentals. He’s ahead of the curve.

Adam will continue to invest in Jacksonville and New York. He didn’t have experience in running an Inn, but he likes new challenges. Adam Wolbarst likes having a diversified portfolio. He’s a big fan of Excel spreadsheets and being methodical. 

The numbers for the Inn were phenomenal and had a reasonable price point. He came home from Woodstock, spoke with his fiance, and saw the numbers making money on this. He went with his gut and the numbers, and he got excited about his investment in the Inn.

What Advice Does Adam Have About Investing In Real Estate?

If you’re not passionate and have a zeal about your investments, you need to stop doing it. It’s something Adam is super happy about, and he jumped in headfirst. So far, so good, minus some housekeeping snafus. 

Building on his strategy, it’s for financial security. He’s an enterprise software salesperson who has a full-time job. Financial security can now let him walk away from his W-2 career.

But Adam stays because he loves it. He invests in Jacksonville because he loves it. He invested in his boutique inn because he loves it. “If you don’t love it, don’t do it,” he advised.

Will He Use Cash Out Refi Options Again In The Future?

Most certainly, yes! Adam is in a fortunate position, and he’s gotten to a point where he’s financially solid within ten years. He’s 35 years old, and he’s reached this financial independence because he actively looks at his opportunities and makes the moves to make them happen.

“Make your own luck.” That phrase stuck with Adam, and he recognizes how lucky he is to be surrounded by great people, love in his life, and solid financial investments. Surround yourself with loving people who support you in your endeavors. You will go far. 

Adam credits the JWB team for helping him through the process and teaching him what to do and what not to do with his investment properties.

How Can Our Not Your Average Investor Community Get More Information About Using Cash Out Refinancing While Investing In Real Estate?

Join us in the JWB Facebook Group at https://www.facebook.com/CashFlowProperties.  

You can also go to www.jwbinventory.com to see what properties are currently available. We encourage you to contact the JWB team for a consultation to determine how our turnkey rental properties can deliver positive passive income cash flow. 

When you are ready to take the next step with Jacksonville real estate, visit www.chatwithjwb.com. We will walk you through the numbers to show you what your potential Return On Investment will be.

We hope you enjoyed learning about investing in real estate via cash out refinancing. Gregg thanked Adam Wolbarst for taking the leap of faith when JWB was a young company and new to the real estate investing scene. Having that trust from Adam means a lot to the JWB team, and growing with them since 2010. 

Adam returned the accolades. Without JWB, Adam would not be in the financial position he is in today at age 35. We agree that’s a fantastic place to be when investing in real estate!

To Your Success,

Gregg Cohen

By Gregg Cohen

I am a co-founder at JWB Real Estate Capital, and I love to talk about investing in rental properties! You’ll often find me here contributing to our blog and in our Facebook group connecting with the community & sharing insights.

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